Flexible workspace take-up to slow in Asia Pacific in 2019

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Flexible office space take-up is projected to slow down across Asia Pacific this year after the rapid expansion witnessed in 2018, with significant M&A also on the cards, says advisor Colliers.

“In 2018 we witnessed the highest annual growth in the sector across the region, with total space occupied by flexible workspace operators increasing by 35% on Hong Kong Island, over 40% in Shanghai and Singapore continuing its growth story having now more than tripled since 2015,” said Jonathan Wright, head of flexible workspace services, Asia at Colliers.

“We expect the take-up from operators to continue over 2019, albeit at a slower growth rate as the sector matures and becomes more focused on specific corporate demand rather than speculative growth in the mid-tier of the sector.

“We also forecast significant M&A activity as the sector consolidates.”

Colliers expects a high level of short-term M&A activity driven by new entrants from the UK, Europe and the US striking deals for local players, as well as operators in Asia coming together to create robust regional offerings.

There may also be some unprofitable operators that fail due to poor unit economics.

In the longer term, Colliers predicts the sector to have about four or five global operators like IWG and eventually WeWork, in addition to smaller local and regional players.

Looking at Hong Kong, operator take-up is expected to slow down this year, however WeWork is tipped to continue its expansion in the city with an estimated 650,000 sq.ft. in its pipeline. Additionally, operators from UK, Europe and the US are eyeing market.

In Singapore, some M&A is expected to take place, especially with international operators looking at leveraging local market knowledge as a way to enter the market.

Operator take-up is expected to continue driven by strong demand from multinational corporations, particularly with large operators.

Flexible workspace is likely to have a year of correction in Shanghai this year, as the overall economy slows.

Operators will focus on lifting occupation and revenue streams, with competition over end-users to stay fierce.

In Tokyo, net absorption from independent flexible workspace operators will remain strong at around 10% of the total, while WeWork continues to take large upfront supply.

And in Seoul, demand from flexible workspace operators continues to rise, particularly WeWork, which has opened 19 locations in the city since 2018.

Competition for space in the South Korean capital is likely to become intense as local and major owner-operators enter the flexible workspace market simultaneously.